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Government Proposed Subsidy for Solar 2019 Rp2.500 per Liter

Jakarta -The government proposes an increase in subsidized fuel subsidy up to Rp2,500 per liter next year. This step is taken to maintain public purchasing power and financial resilience of PT Pertamina (Persero).

In a meeting with Commission VII of the House of Representatives, Energy and Mineral Resources Minister Ignasius Jonan proposed the highest limit for the Solar subsidy value in 2018 to anticipate fluctuations in oil prices.

“We propose given ceiling [maximum limit] maximum Rp2,500. Fixed subsidies per liter. This depends on world oil prices from time to time. So no fixed Rp2.500 paid, “he said, Thursday (19/07/2018).

Thus, the proposed solar subsidy for next year is in the range of Rp1,500-Rp2,500 per liter. This range is wider than the previous proposal – included in the resolutions of 5 July 2018 – valued at Rp1,500-Rp2,000 per liter.

The increase is proposed by the government along with the plan to increase the amount of diesel subsidy this year worth Rp2,000 per liter without revising the 2018 state budget. This figure is up from the benchmark in the 2018 APBN which only reached Rp500 per liter.

For the volume of subsidized diesel, Jonan admitted next year’s assumption fell from the initial proposal. Next year, Solar’s volume of 14.5 million kiloliters, does not move with this year’s outlook. This year’s outlook was also lower than the 2018 APBN benchmark of 15.62 million kilo liters.

Just to remind, the fluctuation of world oil prices tend to strengthen this year precisely responded by the government to determine no change in the retail price of Solar and Premium. As is known, Premium is an oil fuel assignment.

For next year, Jonan said the evaluation will be dilakuka every 3 months. The steps taken by the government, he explained, are solely to safeguard people’s purchasing power. In addition, the risk of inflation as a follow-up impact also continues to be a consideration.

He acknowledged, government policy related to subsidy and other assignment impact on cash flow of PT Pertamina (Persero). Deficit risks in the downstream sector also exist, but it claims the government has been looking for a solution.

“If we see, if not raised [Solar and Premium] price, then there could be a deficit, I think yes. Cashflow must also be somewhat disturbed, but this is a way out, “he said.

Some aspects that are able to maintain Pertamina’s financial health a.l. first, handover over the upstream block of oil and gas Mahakam. He revealed there were about 150,000 BOEPD production with details of 50,000 BOEPD of oil and 100,000 BOEPD of gas.

He said that given the oil and gas block, there is a potential additional net income to the company of about US $ 600 million. In addition, there are 11 other oil and gas blocks currently managed by the state-owned company.

“So it is expected from the upstream sector that [generates] additional revenue that could cover what deficit in the downstream sector or distribution,” he said.

Second, related to the retail price of diesel that is still far from market price. According to him, the government’s step to raise the subsidy value to Rp2,000 per liter is quite helpful. At the same time, Indonesia’s crude oil price increase (ICP) is also impacting.

The ICP realization until June 2018 reached US $ 66.55 per barrel, higher than the assumption set in the 2018 APBN worth US $ 48 per barrel. Meanwhile, this year’s projection and next year amounted to US $ 65 per barrel and US $ 60-US $ 70 per barrel.

“If you look at the realization of ICP until June 2018, there is an excess of state revenue, perhaps up to more than 50%. With this money, we provide for the addition of diesel subsidies, “said Jonan.

Encountered earlier, Plt. Pertamina president director Nicke Widyawati said the subsidy increase this year and next year is more due to the price factor. Moreover, the volume is also no significant addition, even almost the same.

“The value is only because of oil prices,” he said.

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